Corp Governance E 20170330

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Rakuten
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  - 1 - Corporate Governance Report Last Update: March 30, 2017 Rakuten, Inc. Representative:Hiroshi Mikitani, Chairman, President, and Representative Director Contact: +81-50-5581-6910 Securities Code: 4755 https://global.rakuten.com/corp/ The corporate governance of Rakuten, Inc. (the “ Company ” ) is described below. I. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information 1. Basic Views The Group is aiming to maximize corporate value, and has been implementing various measures as rigorous corporate governance is our highest priority.   [Reasons for Non-compliance with the Principles of the Corporate Governance Code] The company complies with all principles of the Corporate Governance Code. [Disclosure Based on the Principles of the Corporate Governance Code] < Principle 1.4 Cross-Shareholdings > The Company regards cross-shareholdings as shares which prevent the increase of capital efficiency based on the fact that they are continued to be held for a long term based on trade practices without rational reasons. Accordingly, the Company has set a policy not to hold such shares in principle. If the Company may hold “Special Investment Securities” (shares held for reasons other than pure investment purpose) as defined in the Financial Instruments and Exchange Act, it shall ensure that such investment will contribute to the increase in shareholder value of the Company and the investee. In holding Special Investment Securities, members, including Outside Directors, of the Investment Committee  preliminarily deliberate on whether the holding should be proceeded or not. The result of such deliberation shall be reported to the Board of Directors. In exercising voting rights of shares held under shareholding arrangements, the Company makes decisions upon comprehensive consideration of various factors, such as whether each agenda item is expected to contribute to the efficient and sound management, as well as the increase in corporate value of the issuing company. However, there are no standardized criteria for exercise of voting rights at this point since they require comprehensive judgement appropriate for individual shares. < Principle 1.7 Related Party Transactions> The Company requires resolution by the Board of Directors for conducting conflict-of-interest transactions and competitive transactions with Directors or corporations where Directors serve as representatives. Directors who have special conflict of interest on such matters are not entitled to vote on such matters. In addition, the results of such transactions shall be reported to the Board of Directors. Further, the Company discloses terms and conditions as well as the policy for determining terms and conditions for related party  - 2 - transactions in the notice of annual general shareholders’ meeting, securities report and other documents.  < Principle 3.1 Full Disclosure> (i) The Company’s corporate philosophy, basic management policy, brand concepts, the Rakuten Shugi (Rakuten principles) and management strategy are disclosed in the financial reports and the website of the Company. (ii) The basic policy of corporate governance is available for reference on the Company’s website, and in this corporate governance report and securities report of the Company. (ii i) As a general rule, the Group has designed its compensation system so that as an individual’s rank and their role played increases, the portion of their total compensation comprised of performance-based bonuses (based on individual, Group Company, business unit or department performance) and stock options (that are linked to stock prices) also increases. The total number of stock options to be granted is decided with the resolution at the Board of Directors. With regard to compensation, etc. of Directors, the total amount of compensation is resolved at the Annual General Shareholders’ Meeting. In the determination of amount of compensation for each Director, the Company follows the compensation policy as below. Executive Directors Compensation is determ ined based on the degree to which the Group’s operating profit targets were achieved; the business performance of each Group Company, business segment or division; the degree of contribution to the Group; and market conditions.  Non-executive Directors Compensation is determined based on the degree of contribution to the Group; and market conditions. Compensation for Executive Officers, who are members of the management team, is determined by evaluation of their superiors with the similar criteria as the Executive Directors and subsequently by Vice Chairman and Executive Vice Presidents before receiving final approval by the President. (iv) With regard to the policy and procedures for nominating candidates for Directors, the Company, based on its corporate philosophy, selects candidates for Directors who embody such corporate philosophy at a high level and who are expected to contribute to further development of the Group. Additionally, by making the term of office of each Director one year, the Company upholds the basic policy of seeking the judgment of its shareholders in selecting its Directors each year. In particular, the Company selects persons who have extensive experience, professional knowledge, and are able to play a leading role in areas such as IT, the financial industry, corporate management, the legal profession, finance and accounting, public administration, and consulting, and who are capable of appropriately guiding and supervising the business execution of the Group. With regard to the policy and procedures for nominating candidates for Company Auditors, the Company, based on its corporate philosophy, shall select persons from among those who are able to conduct supervision and audit to ensure that the duties of Directors and Executive Officers are appropriately executed in accordance with laws and regulations as well as social norms, at the same time capable of increasing the corporate value of the Group. In addition, the Company obtains advice from Outside Directors, when appropriate, in selecting candidates for Directors and Company Auditors. (v) The Company discloses the reasons for selecting each of the candidates for Directors and Company Auditors in the notice of annual general shareholders’ meeting.  <4.1.1 Scope and Content of the Matters Delegated to the Management> The Company makes determinations and decisions via board resolution about matters that are legally required to be resolved at the Board of Directors, as well as about strategically important matters that the Company has deemed should be resolved by the Board. These items are stipulated in the Rakuten Group Authority Table, which includes matters related to Finance, M&A, Assets, Accounting, Annual Budget and Business Plan, Cost Expenditure, Human Resources, Intellectual Property, Organizations, IT security and Corporate Brand. In an effort to prompt further constructive and dynamic discussions on management strategies, the Company revised the items to be discussed, the actual discussions and the frequency of the Board of Directors’ meetin gs starting from August 2016. In addition to regular meetings, the Board of Directors holds extraordinary meetings as required. At these meetings, Directors make decisions on important management matters and supervise Executive Officers’ activities. Executive Officers, upon receiving business execution orders from the CEO, carry out business  - 3 - execution within the administrative authority set forth by the Company. To enhance the corporate value, as to a case that requires new capital expenditure including any investment, members, including External Directors, of the Investment Committee preliminarily deliberate on whether the case should be proceeded or not. The result of such deliberation shall be reported to the Board of Directors. <Principle 4.8 Effective Use of Independent Directors / Principle 4.9 Independence Standards and Qualification for Independent Directors / 4.11.1 View on the Appropriate Balance Between Knowledge, Experience and Skills of the Board as a Whole, and Also on Diversity and Appropriate Board Size> The Company, based on its corporate philosophy, selects candidates for Directors who embody such corporate philosophy at a high level and who are expected to contribute to further development of the Group. Additionally, by making the term of office of each Director one year, the Company upholds the basic policy of seeking the judgment of its shareholders in selecting its Directors each year. In particular, the Company selects persons who have extensive experience, professional knowledge, and are able to play a leading role in areas such as IT, the financial industry, corporate management, the legal  profession, finance and accounting, public administration, and consulting, and who are capable of appropriately guiding and supervising the business execution of the Group. The Board of Directors consists of eight Directors, which the Company believes to be an appropriate size for effective management decision-making and supervision. Additionally, the Company places emphasis on the diversity of its Directors. To this end, it has appointed one woman and three foreign nationals as Directors among its eight Directors, and one woman and two foreign nationals among its five Outside Directors. With the aim of ensuring a high level of transparency and strong management supervision, thereby increasing the corporate value, the Company, in selecting its Independent Directors and Independent Company Auditors, determines persons who, in principle, do not fall under any of the following criteria to be independent. a. Executive of the parent company or a fellow subsidiary of the Company (*1)  b. A party whose major client is the Company or an executive thereof or a major client (*2) of the Company or an executive thereof c. Consultant, accountant or legal professional who receives a large amount of monetary consideration or other property from the Company besides compensation as Directors or Company Auditors d. A person or party who has recently fallen under any of a) through c) above (*3) e. A close relative of a person who falls under any of a) through d) above, or a close relative of an executive of the Company or its subsidiary (including those who were executives until recently) (including a close relative of non-executive Director or accounting advisor of the Company or its subsidiary, in the case where Outside Company Auditor is appointed as an Independent Company Auditor) *1: An executive as stipulated in Article 2, Paragraph 3, Item 6 of the Ordinance for Enforcement of the Companies Act, which includes employees in addition to executive Directors, and does not include Company Auditors. *2: Refers to cases in which, using the transaction amount with the Company as the criterion, the sum of the Company’s total purchase amount accounts for 1% or more  of the total amount of Cost of sales and Selling, general and administrative expenses. *3: Cases which are considered, in effect, equivalent to the present condition, such as where a party or  person fell under any of a) through c) at the time the contents of the proposal of the General Shareholders’ Meeting are determined for the election of such Independent Directors or Independent Company Auditors as Outside Directors or Outside Company Auditors. < 4.11.2 Concurrent positions of Directors and Company Auditors > The Company discloses the status of significant concurrent positions of Directors and Company Auditors each year in its disclosure materials, such as reference documents of the notice of annual general shareholders’ meeting and securities report. < 4.11.3 Analysis and Evaluation of Effectiveness about the Board of Directors as a whole> To enhance effectiveness of the Board of Directors, the Company held survey to all of the Directors and the  - 4 - Company Auditors about the operation of the Board meetings and the composition of the Board of Directors. The result was reported to the Board of Directors in February 2017, with the conclusion that the effectiveness of the Board of Directors was confirmed. The Company will continue to improve the Board to enhance its effectiveness. < 4.14.2 Training policy for Directors and Company Auditors> The Company intends to create opportunities on an ongoing basis to provide explanation to Outside Directors and Outside Company Auditors upon their appointment concerning the roles and responsibilities they are required to fulfill in accordance with the Companies Act. Starting from April 2016, the Company has been holding intensive sessions every quarter held separately from the meetings of the Board of Directors, where Directors and Company Auditors mainly engage in debate about Group management strategy, etc., separately from the meetings of the Board of Directors. Participants discuss matters from a medium- to long-term perspective, rather than confining themselves to short-term issues or items discussed at the meetings of the Board of Directors. Through these sessions, the Company  provide opportunities for Outside Directors and Company Auditors to deepen their understandings about the  businesses and issues of the Company. < Principle 5.1 Policy for Constructive Dialogue with Shareholders> The Group, as a listed company, discloses timely and appropriate information to shareholders and investors in accordance with related laws and regulations as well as rules, such as the Financial Instruments and Exchange Act and timely disclosure rules set forth by the financial instruments exchanges. In addition, the Group, as a social entity, aims to contribute to increased shareholder value by disclosing information fairly to stakeholders, such as business partners, customers, users and employees, and developing a transparent and highly reliable information disclosure system. In order to carry out the above, the Company implements the following measures. (1)   System The Rakuten Group Regulations and other internal regulations stipulates that the Company’s Executive Director of the Finance & Accounting Division , as the Group’s Chief Financial Officer (CFO), is responsible for implementing timely and appropriate disclosure of information of the Group Companies (excluding the listed Group Companies other than the Company and subsidiaries of the listed Group Companies). The Company has notified the Tokyo Stock Exchange, Inc. of the designation of the Executive Director of Finance Department as Executive Director of Information Disclosure. When holding dialogue with shareholders and investors, the Company appoints dedicated IR staff in the IR Department and regularly communicates with stock market. In addition, we offer an opportunity to interview the Chairman and President and Representative Director, CFO and other Directors, or Executive Directors in charge of principal businesses, etc., as necessary. (2)   IR activities The Company explains to shareholders about the medium-term business strategy in addition to the business  performance for the quarterly period at the quarterly financial results conferences where Representative Directors attended. It also strives to transmit information fairly and promptly through live streaming and on-demand videos of the quarterly financial results conferences on the website. The Company also sets the “ Rakuten Investor Day” for domestic and international institutional investors and analysts once a year, in which the Chairman, President and Representative Director and officers responsible for major businesses explain about the business strategy in English to create an opportunity for deepening the understanding of said investors and analysts about the Group ’s measures for enhancement of shareholder value over the medium- to long-term. With regard to businesses and areas in which shareholders and investors have high interests, we hold  briefing sessions and on-site tours as appropriate to create an opportunity for deepening their understanding about the potential value of such businesses and areas. In addition, we actively disclose information utilizing our website to transmit information fairly and  promptly to a wide range of shareholders and investors. We release the following information on our website: IR information such as the details of financial results announcement, timely disclosure information, English annual reports, and corporate governance information, etc.. In addition to the video streaming of quarterly financial results conferences, video of the latest company information, etc. is made available on the website.
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